So you lost a bunch of money in the market, right? You bought Crest Animation, K S Oil, Punj Lloyd.

None of them are likely to be anywhere near your cost for the next decade or two. Or you bought Kingfisher shares because somebody came on Television and told you it is a great buy. Whatever. There is no shortage of scandals in the markets.

The share markets around the world have been home to more than its fair share of scandals. There have been scandals from accounting, fraud, rigging, insider trading, audit committees not doing their work, research reports for different audiences, back dating of esops, and initial public offerings.

Maybe you’ve just lost a fortune in the market. The money is gone, and it must be somebody’s fault. There must be some way to get the money back. I have seen many scandals in my lifetime In one case, a police officer investigating a “stolen share” case asked me “If the shares are stolen, why did the broker buy it”. He could not understand that if a stolen radio, TV or fridge “buying” is an offence why is the buying of a stolen share not an offence.

One police officer went even further saying, “If I have bought ACC shares for Rs. 12,000 and now the share is Rs. 3400, should the company not pay me the difference? After all, I have lost it to the company, have I not?

There was an IIT rank holder IPS officer who took 20 minutes to understand the whole thing, and of course, before he could crack the case, he was transferred.

While it is true that you may be able to recover some or all of your losses based on broker misdeeds or misinformation, keep in mind your broker and other outside forces frequently aren’t solely to blame.

All too often, the real culprit is staring back at you every time you shave!

Buyer Beware!

One of the bull run curses is that how people willingly hand over their money to complete strangers without making so much as a single telephone call to verify the stranger’s claims of credibility. Or knowledge. How simple it is for a nice smelling, nicely dressed, nice visiting card person to make a client part with his or her money!

To quote Godfather, it is easy for a man with a pen to swindle much more than a man with a gun. Surely, he did not mean your personal banker! After giving their wallets to the “stranger”, these people simply sit back and wait for the money to start pouring in. In addition, if they don’t get rich and lose a portion of their initial investment, they blame everybody in the world, (including GOD), but themselves! On occasion, they go to the authorities, and may even sue! They still feel wronged. They are victims. They have been taken advantage of by unscrupulous brokers, bankers, advisors, agents, capitalists … or have they?

Your Obligations BEFORE handing over the purse

If you buy a mutual fund, unit linked life insurance or direct equities, you have some rights – but also there are some obligations. Sebi, Irda, and other agencies can only do enough to reach information to your doorstep. If you choose to ignore it, God bless you.

However, as an intelligent investor, who will not want to lose money, you also have an obligation. Learn about the person or organization you trust with your money and the investments your money will be used to purchase. Before blindly handing over your cash, the first step is making sure you have made a strong effort to hire the right kind of help.

Before you hire an investment adviser (does not matter if it is a bank) ask him for 3 references IMMEDIATELY. Without letting him talk to the client speak to the client and ask for his or her views. Doing this helped my friend choose a particular brand of car over another. This is a very useful step.

Hiring someone to give advice does not absolve you as an investor of the responsibility for accepting that advice. In case you do not know how the “adviser” is compensated, ASK.

Make sure that you know who paid for his Malaysia trip, Goa, or West Indies. If you do not know who is paying for all the fancy laptop, the perfume, the tie, the cell phone, the foreign jaunts, it is most likely to be you. If at a poker table you do not know who is to be had that evening, it is you.

Once the decision has been made to hire outside help, your obligation to pay attention and remain fully engaged in the process doesn’t disappear.

As an investor:

Every piece of paper that you are given must be read. And understood.
Every disclosure document must be reviewed until you understand it.
Every item that you find confusing must be questioned.
See whether you need it at all – if nobody is dependant on you, say bye to the insurance person!
Every investment that you make must be researched until you are positive that you completely understand it.
Never sign anything that you don’t understand, and always get a copy of everything that you sign.
When in doubt ask. Ask. Ask. Ask.
If still in doubt, say NO. It is your money; do not feel ashamed to keep it!
Take responsibility for your action. Say “I foolishly invested” stop saying “I got cheated”
Mis-selling is as much a problem as Mis-buying.
Reagan said, “Trust but verify”. Remember it.
Play one vendor against the other to find out about the bad qualities
If it is an insurance policy ask for illustration FROM THE COMPETITION to be used as a base for comparison.

I have met a top film actor, producer and director. He had no qualms asking for the most basic questions like “What is equity”, “Why do you say equity gives the highest return”. I felt honored at spending half a day with him and a few of his friends. (Yes, I was being paid for the time!).

If you have chosen well, the person providing financial advice to you has a fiduciary obligation to give you good advice. Of course, that is true only if you are seeking fee-based advice. If your banker or broker is your adviser too, then be careful. How come you make money with your own brains, but lose money because your adviser is a cheat? Set realistic expectations and, if it looks too good to be true, it probably is. In case you wonder how the adviser landed that job, it is time you changed your banker.

Remember if you do not know how an adviser is being paid, you are paying (perhaps) a price far, far higher than a fee-based planner. If you have not hired him (i.e. you are not paying him a fee), you cannot sack him either. That is the price of free advice.